IMF Note on Economic Transformation in MENA: Delivering on the Promise of Shared Prosperity

May 27, 2011, Deauville, France

About the Executive Summary

The Following executive summary is from a note by the Staff of the IMF prepared for the May 27, 2011 summit of the Group of Eight in Deauville, FranceRead the Full text

Executive Summary

The spark ignited by the death of Mohammed Bouazizi has irretrievably changed the future course of the countries in the Middle East and North Africa (MENA). But each country will change in its own way and at its own speed. Nor will they necessarily have a common political or economic model when they reach their destination.

The response to the recent popular protests in the MENA clearly entails a political dimension. But social and political stability will only be assured if the region creates 50–75 million jobs over the next decade for the people joining the labor force and to reduce unemployment, and if the economic model is seen as fair and inclusive.

Incremental changes in economic management will not deliver this outcome. A substantial increase in the pace of economic growth is needed, which calls for policies that support an enabling environment for the private sector. Change must also build on successes and achievements. In particular, the region’s hard-won gains in macroeconomic stability need to be preserved during the coming period of structural transformation. To secure wide support among all stakeholders, growth strategies also need to deliver broadly shared gains to overcome skepticism grounded in past experiences where “reforms” were seen as imposed from above to benefit a privileged few.

The transformation should be led by the MENA countries themselves; they will determine its ultimate success. But the international community can greatly contribute to success by providing an ambitious and multifaceted program of support, encompassing incentives such as market access, labor mobility, credit guarantees, debt relief, and concessional lending. In the initial years, some countries will need external support to meet their financing requirements. In the current baseline scenario—that does not yet include the reform agendas that countries would develop—the external financing needs of the region’s oil importers is projected to exceed US$160 billion during 2011-13, with a substantial part of these to be met from official sources.

The G8 can support this transformation through a long-term strategic partnership with the GCC and other interested MENA countries, underpinned by an institutional process of collaborative monitoring of this multiyear transformation. An action plan for such a strategic partnership could build on the following elements:

In the immediate future, there is a need to restore confidence in the oil-importing countries, which face surging global commodity prices and domestic pressures associated with the initial transition shocks. The International Monetary Fund (IMF) can play an important role by assessing the financing needs of these countries, proposing short-term financing strategies, and providing financial support as part of a broader international effort.

In parallel, ministers of finance of the G8, GCC and other interested MENA countries could develop the objectives, elements, and implementation plan of a strategic G8-MENA partnership framework, with each party articulating its potential contribution. This overall framework could serve as a basis for country-level agreements, which set out each country’s economic objectives and implementation strategy as well as the G8/GCC contribution, linked to the progress on the transformation agenda.

The IMF, the World Bank and other multilateral and regional development banks could assist interested MENA countries in developing their economic strategy and translating it into a costed multi-year sector-by-sector development agenda, embedded in a medium-term macroeconomic framework. Support from the international community would be geared to help meet these development objectives and could be linked to progress on institutional and governance reforms in line with the elements and objectives of the strategic partnership.